* Retail sales up 4.4 pct in Sept, similar to August
* Capital investment falls by 1.3 pct
* Central bank may hold interest rates in response to weak data (Wraps data releases, adds context and analyst comments)
By Jason Bush
MOSCOW, Oct 17 Russia's economy is struggling to maintain its recent growth momentum, economic statistics showed on Wednesday, increasing the likelihood that the central bank will hold off on a further hike in interest rates next month despite fears about rising inflation.
Data released by the State Statistics Service showed that retail sales rose by 4.4 percent in September compared with a year earlier, a marginal increase on 4.3 percent growth registered in August.
The growth rate was sluggish compared to the first half of the year, when retail sales grew by an impressive 7.3 percent, although the September figure came in line with analysts' average forecast in a Reuters poll.
A rapid increase in household consumption had enabled Russia to shrug off the impact of a slowing international economy and post relatively strong economic growth of 4.5 percent in the first half of the year.
But the consumption boom lost steam over the summer, with the latest figures showing that the slowdown has not been significantly reversed.
"I am most disappointed about the retail sales growth," said Natalia Orlova, chief economist t Alfa Bank.
"Higher inflation has resulted in a deterioration in consumers' expectations, and this was probably one of the factors why retail trade growth was rather modest."
A further disappointment was an unexpected fall in capital investment by Russian companies, which fell by 1.3 percent in September compared with a year earlier.
"The results are even weaker than expected," said Alexander Morozov, chief Russia economist at HSBC.
"Overall we can say that private consumption growth remains robust, but the outlook is getting weaker. And most disappointing of course is that fixed investment growth turned negative."
He said that the slowdown in investment was probably because state-linked companies moved investment forward into the first months of this year, and the final months of last year, to coincide with key elections.
"Unfortunately I think these negative numbers are likely to be repeated in the fourth quarter as well," he said.
INTEREST RATE HINTS
The consumption and investment figures are being closely watched because of hints that they may provide about the next moves in interest rates by the Russian central bank.
The central bank raised all its interest rates by 25 basis points in September, and there is speculation that it may soon raise them again to reinforce its anti-inflationary message. [ID:ID:nL6E8L536D]
However, the relatively disappointing economic data for September increases the likelihood that it will hold off on further rate increases for the time being.
A rate hike "is very unlikely with these very poor economic figures," said Orlova.
But economists remain uncertain about the central bank's next moves, given that the annual increase in consumer prices reached 6.6 percent in September, above the central bank's original target range for the year of 5-6 percent.
Wednesday's data showed that despite the slowing economy, the labour market remains tight, with unemployment low at 5.2 percent, and wages growing by 13.9 percent in nominal terms and 6.6 percent in real terms, an acceleration compared with August.
"The economy is clearly losing some momentum compared with the first half of the year. This clearly tells us that the central bank should not be very aggressive in its tightening of monetary policy," said Dmitry Polevoy, Russia economist for ING.
"At the same time, inflation is still above the central bank's year-end target, and there are risks still that next year's target range of 5-6 percent could also be exceeded. Given all its logic, it can still deliver an extra 25 basis point hike in lending rates." (Writing by Jason Bush; Editing by Ruth Pitchford)